The Corporation Has Three Departments, Widgets, Ridgets and Digits

question 31

Multiple Choice

The Corporation has three departments, Widgets, Ridgets and Digits. At the end of the accounting period the following information is available.

The Corporation is considering eliminating the Widgets department. What will be the change in The Corporation's profit if the Widgets department is eliminated? Assume that all indirect expenses are unavoidable and that all other circumstances are held constant.

• A) $500 fall
• B) $1500 fall
• C) $1000 fall
• D) $1500 increase

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Definitions:

Substitution Effect

The change in consumption that occurs when a price change moves the consumer along a given indifference curve to a point with a new tangent and slope.

Income Effect

The change in consumption resulting from a change in real income, with income changes arising from changes in prices, wages, or other factors.

Inferior Good

A type of good for which demand decreases as the income of consumers increases.

Income-Consumption Curve

A graphical representation showing how changes in a consumer's income affect their spending behaviors on different goods.